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The theoretical returns of factors such as value, low-volatility and momentum are well documented. But how do you translate them into workable strategies? In this interview, David Blitz, Robeco’s Head of Quantitative Equities Research, explains how investor portfolios can benefit from factor investing.
In this video, Investment Solutions’ Tom Steenkamp discusses Robeco research showing that the traditional small-cap, value, low-volatility and momentum factors not only improve equity portfolio efficiency but also work for credit and commodity portfolios.
A long and successful track record, portfolios covering global, developed and emerging markets and a sophisticated quantitative investment process are propelling the take-up of Conservative Equities, says Arlette van Ditshuizen.
Do you know why it makes sense to invest in an enhanced low-volatility strategy rather than a generic alternative? That is just one question answered by Pim van Vliet, Senior Portfolio Manager of Robeco Conservative Equities, in a new FAQ on low-volatility investing.
Residual Equity Momentum for Corporate Bonds
“Why limit yourself to the equity premium,” asks David Blitz, Head, Robeco Quantitative Equity Research, “when there are systematic factor strategies that outperform market-cap-weighted benchmarks?” Recent research from Robeco looks at how to translate the theory of factor premium investing into practice.
An enhanced low-volatility strategy, which also provides exposure to valuation and sentiment factors, can improve returns by up to 6% a year.
Corporate bond returns consist of two distinct components: an interest rate component, which is default-free and anti-cyclical, and a credit spread component, which is default-risky and pro-cyclical.
A long-time advocate of low-volatility investing, Robert Haugen, believes the evidence in favor of low-volatility investing is overwhelming.
We are pleased to present you with this collection of 13 articles on low-volatility investing. The articles included here share two things in common: they all dig into the low-volatility anomaly and they are all written by Robeco researchers.
In this Research Note we show that low-risk credits had superior risk-adjusted excess returns over the past 20 years.1 By selecting low-risk bonds from low-risk issuers, investors would have earned credit-like returns at substantially lower risk.
We provide a proof that volatility weighting over time increases the Sharpe or Information Ratio. The higher the degree of volatility smoothing achieved by volatility weighting, the higher the risk-adjusted performance
In this study we evaluate the performance of actively managed equity mutual funds against a set of passively managed index funds.
The volatility effect is present in US stock returns in every decade from 1931-2009. During these decades, low-volatility stocks produced a positive absolute return, with lower risk than the market-capitalization-weighted index.
Ibbotson’s “Stocks, Bonds, Bills and Inflation” data set is widely used because it provides monthly US financial data series going back to as early as 1926. In this data set, the “default premium” is calculated as the difference between the total returns on long-term corporate bonds and long-term government bonds.
New research from Robeco identifies and corrects for biases in analyst earnings revisions, says Senior Quantitative Equities Researcher, Joop Huij.
A short-term reversal strategy based on residual momentum reduces exposure to systematic factors and results in lower risk and better returns than a conventional momentum strategy.
What is the best way to measure the performance of a strategy focused on risk-adjusted return? David Blitz and Pim van Vliet answer this question in their article, Benchmarking Low-Volatility Strategies, published in the Journal of Index Investing.
An optimal portfolio allocation will have large exposures to value, momentum and low-volatility strategies, according to a study of US equity returns over 40 years.
Several studies report that abnormal returns associated with short-term reversal investment strategies diminish once transaction costs are taken into account.
We analyzed the sensitivity of the duration model's performance to inflation and different financial market regimes. Our conclusions are threefold: (1) the model delivers a strong performance when inflation is high; (2) the model offers protection against rising inflation for bond investors and (3) the model is successful in both bull and bear markets.
In this note we evaluate the performance of active and passive emerging markets equities (EME) funds. In the first section, we investigate if it is possible to identify active EME funds that systematically outperform passive benchmark indexes. This section is based on a more extensive paper by Joop Huij and Thierry Post. In the next section, we examine the performance of passive EME funds, focusing on whether these funds succeed in their objective to closely track the return of a passive benchmark index. This section is based on a more extensive paper by David Blitz and Joop Huij.
This comprehensive investigation of the relation between the value anomaly and distress risk finds that value stocks are not cheaper than growth stocks due to the risk of financial distress.
This comprehensive investigation of the relation between the value anomaly and distress risk finds that value stocks are not cheaper than growth stocks due to the risk of financial distress. While the study looked at US stock returns, the research applies to emerging markets as well.
A rare application of a low-volatility strategy in emerging markets, Robeco Emerging Conservative Equities was launched in February 2011. Pim van Vliet, Senior Portfolio Manager, Low-Volatility Equities, explains the new strategy, the research underpinning it and how it fits into an institutional portfolio.
Emerging markets ETFs typically underperform benchmarks by 1% a year and about half of the funds exhibit high tracking errors. With these characteristics, should they be classified as passive strategies?
A decentralized professional investment process can lead to inefficient portfolios. Low-risk equities are undervalued because active managers have a dual incentive to buy high-risk stocks.
Robeco advocates Responsible Investing. We believe that this improves the long-term risk-return profile for our clients. One of the pillars of Robeco’s Responsible Investing policy involves the integration of environmental, social and governance (ESG) factors into the investment process.
Generating benchmark-like returns is a difficult job in the High Yield corporate bond market. High index turnover and illiquidity, i.e. high bid-ask spreads, are the main reasons why passively tracking a High Yield index comes at significant costs.
We build on the work of Wright and Zhou (2009) who show that the average jump mean in bond prices can predict excess bond returns, capturing the countercyclical behaviour of risk premia.
Low-risk stocks lead to higher risk adjusted returns. Portfolio manager Pim van Vliet reveals why and how investors can benefit.
The risk premium does not exist and the scope of its failure is wide, says, Eric Falkenstein, Ph.D. and low volatility investing expert.
Pension funds can protect funding ratios by making low-risk stocks a part of their equity allocation, says Pim van Vliet, Senior Portfolio Manager, Robeco Low Volatility Equities.
Low-volatility investing is gaining momentum among institutional investors, Pim van Vliet, Senior Portfolio Manager, Robeco Low Volatility Equities, summarizes the strategy’s key points.
Not only do the value and momentum effects exist in frontier markets, these effects are uncorrelated with each other and with similar strategies in developed and emerging markets.
Efficient markets theory has been challenged by the finding that relatively simple investment strategies are found to generate statistically significantly higher returns than the market portfolio.
Efficient markets theory has been challenged by the finding that relatively simple investment strategies are found to generate statistically significantly higher returns than the market portfolio. Well-known examples are the value, size and momentum strategies, for which return premiums have been documented in US and international stock markets. Market efficiency is also challenged, however, if some simple investment strategy generates a return similar to that of the market, but at a systematically lower level of risk.
European index funds and exchange-traded funds underperform their benchmarks by 50 to 150 basis points per annum. The explanatory power of dividend withholding taxes as a determinant of this underperformance is at least at par with fund expenses.
Some of the most influential scientific papers on the predictability of bond markets connect theory with the tested predictive power of the variables of Robeco’s duration model. A small sample of academic evidence on the predictability of fixed income markets is discussed in this paper and its link to the model is illustrated.
An analysis of the success of value, momentum and earnings revisions strategies in emerging markets finds that behavioral biases are at work—just as in developed markets. This paper was later published in Emerging Markets Review.